Repositioning Automobile Industry from Market Angle

With a large population, young labour force GDP per capita of US$1,200 in 2010, Vietnam is considered having a huge consumption demand, becoming a very appealing market in the ASEAN region. Vietnam is now home to some 1.6 million automobiles and 30 million motorcycles (based on data in 2010). By 2020, the travelling demand will increase over 1.5 times from 2005.

 

Vietnam’s auto production capacity and sales are relatively low (about 150,000 vehicles a year). Production of all types of vehicles is small and scattered. Outputs of Vietnamese-invested automakers and foreign-led rivals are relatively equal.

 

In recent years, commercial vehicles (truck and bus) have developed steadily but the automotive industry needs to focus on personal passenger cars (sedan). The demand for this line is estimated to jump to at least 300,000 units a year in the 2012-2015 period.

 

Given such a booming demand, Vietnam will suffer ballooning trade deficit if the automobile industry fails to meet the demand for passenger cars. So far, vehicle importation has eaten into the domestic auto industry. Recently, imported cars are estimated to account for 30 percent of the market share. With a demand for 300,000 vehicles a year, trade deficit will be added tens of billions of US dollars each year. Currently, 5,000 auto showroom and 1,700 trading companies in the country are importing brand-new and used cars.

 

As of April 30, 2011, the country had more than 1.3 million automobiles, of which nearly a half was saloon cars [sedans]. This fanned concerns over already-terrible traffic congestion, environmental pollution and traffic accidents.

 

In big cities like Hanoi, Ho Chi Minh City, Hai Phong, Da Nang and Can Tho, excessive number of vehicles in relation to the capacity of traffic infrastructures causes recurrent traffic congestions, environmental pollution and road traffic accidents. Vietnam needs appropriate policies to address urban traffic problems while it carries out modern urban railways and subway projects. Policies to restrict car use are necessary at the present time.

 

At present, investments for the domestic automobile industry are uneven. [Policymakers] need proper policies to spur the development of this industry. Priority should be given to larger automakers, and companies with annual output of over 20,000 vehicles should be place ahead of those with 10,000 - 20,000 units a year in the order of precedence. The Government should have appropriate preferential policies for companies striving to increase the ratio of locally sourced components in their vehicles.

 

The Vietnamese auto market is still relatively small and its growth is unstable because of changeable tax policies, specially excise taxes, import duties and VAT.

 

So far, auto manufacturers and importers have based on tax hike to give excuse to rising selling prices. Information about tax revision is always released at the will of car sellers. According to many researches, high prices of automobiles in Vietnam partly result from taxes but the demand is not affected because prices rise continuously. A car user still gains a margin when he sells his used car!

 

Notably, taxes like import/export tariffs, excises (special consumption tax) and VAT are always counted to selling prices. Hence, if import prices are not controlled, the market will be distorted and losses will go to the State, consumers and domestic manufacturers.